Business Maverick

Business Maverick

Tencent Offers to Buy Out U.S.-Listed Chinese Search Giant Sogou

Sogou signage is displayed during the 2019 China Digital Entertainment Expo & Conference. Photographer: VCG/Visual China Group via Getty Images

Tencent Holdings Ltd. has offered to buy out and take private search engine Sogou Inc. in a $2.1 billion deal, adding to a slew of Chinese technology giants seeking to delist from U.S. bourses.

Tencent is offering $9 in cash for each American depositary share it doesn’t already hold in Sogou, backed by fellow internet giant Sohu.com Ltd. That’s a 57% premium to the target company’s Friday close. Sohu’s shares gained 40%, their most in a decade, while Sogou leapt a record 48% in New York.

Chinese internet companies are exploring listings closer to home after a proposed U.S. bill threatened to force them to delist from New York by imposing stricter disclosure requirements — – a prospect that looks increasingly plausible as the Trump administration amps up action against Beijing on multiple fronts. Online gaming company Changyou.com Ltd. got taken private this year by Sohu, and 58.com Inc. is being bought out by a private equity consortium for $8.7 billion.

Sogou said in a statement it was considering the takeover offer, though Tencent already owns about 39.2% of Sogou but controls a majority of voting power. The search engine — whose name translates as “search dog” and floated publicly only in 2017 — was the default in a slew of Tencent products including its marquee social app WeChat and is making a push into artificial intelligence. It remains runner-up however to longstanding desktop search leader Baidu Inc.

What Blomberg Intelligence Says

Tencent’s return to the search engine business may pose a challenge to China leader Baidu, and help fend off competition from potential market entrants ByteDance and Alibaba. Tencent sold search engine Soso to Sogou in 2013. Its bid to buy the 61% of Sogou it doesn’t yet own at $9 per ADS will cost more than $2 billion.

– Vey-Sern Ling and Tiffany Tam, analysts

Click here for the research.

Sogou may explore a listing in Hong Kong in future, on the heels of well-received debuts by the likes of Alibaba Group Holding Ltd. and JD.com Inc. It’s become an increasingly attractive route for Chinese tech giants such as Jack Ma’s Ant Group, which is speeding toward what could be the market’s biggest float in years.

The “market has been anticipating more companies to pursue secondary listing in Hong Kong,” Jefferies analysts led by Thomas Chong wrote. “We consider there will be more synergies between Sogou and Tencent in search and smart devices in the future.”

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